Bigger isn’t always better. From the Tower of Babel to Teddy Roosevelt’s trust-busting, that principle’s been enshrined in law and legend since the dawn of history. Have we forgotten the lesson?
Corporations, databases, storehouses of personal and institutional wealth all are expanding at ever-increasing speed, threatening to engulf our economy and our lives as they do. That’s the problem with Big Things: Once they reached a certain size, they keep on getting bigger.
Here are seven ways the runaway power of Bigger in finance and in data is threatening to overwhelm us all.
1. Bigger Corporations
Americans have known about the danger of overly large corporations since the founding of the Republic. “I hope that we shall crush in its birth the aristocracy of our monied corporations,” said Thomas Jefferson, “which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.”
“The money powers prey upon the nation in times of peace and conspire against it in times of adversity,” Abraham Lincoln observed. “The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy.”
Even an unlikely populist, Grover Cleveland, said this: “As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear, or is trampled beneath an iron heel. Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.”
Oversized corporate power is why Congress passed the Sherman Antitrust Act of 1890. It’s why Theodore Roosevelt broke up the railroad. When businesses become so large that competition’s squeezed out, everybody suffers.
And yet today we’re confronted with the largest corporations in history, with predictable, even inevitable, results. In real dollar terms, the minimum wage is less than half what it was in 1968. One of the main reasons for that is that most minimum-wage employees work for large corporations who dominate both their labor markets and the political process.
The Census Bureau reported in 2008 that 33 million Americans—more than 25 percent of the total workforce—worked for corporations with 10,000 employees or more. The largest employer is Walmart, with an astonishing 1,400,000 employees, followed by the company that owns Taco Bell, Pizza Hut and KFC, and then McDonald's.
With that kind of clout it’s easy to keep wages low while doling out record payouts to executives and shareholders. Walmart, for example, paid $11.3 billion in dividends and share buybacks last year. That comes to more than $8,000 per worker. McDonald’s shareholder payouts came to nearly $7,000 per worker.
What’s more, despite their PR campaigns, there’s no evidence that shoppers benefit by paying less for their goods. Walmart aggressively forces prices downward for its suppliers, sometimes below the cost of production. But the suppliers have to make up the difference somewhere, either by over-charging other stores or underpaying their own employees and suppliers.
Either way, it comes out of the public’s pocket in the end.
Companies like Walmart don’t create jobs, either. They take them from elsewhere, and frequently pay less in wages. A Pennsylvania study found a correlation between the presence of Walmart and increases in county-wide poverty, which the authors speculated might have been because “Walmart stores destroy civic capacity in the communities in which they locate by driving out local entrepreneurs and community leaders.”
They can kill leadership at the national level, too.
2. Bigger Banks
The statistics on too-big-to-fail banks and financial institutions are staggering: The largest 0.2 percent of US banks—12 of them, altogether—control 69 percent of the industry’s total assets, while 98.6 percent of all banks held only 12 percent of assets.
The four biggest banks still control 83 percent of the derivatives market, and only 25 commercial banks—out of a total of 8,430 FDIC-insured commercial banks in the United States—control roughly 90 percent of the market.
With the exception of struggling Bank of America, the top five banks all grew even more in the first quarter of this year. Richard Fisher, president of the Dallas Federal Reserve Bank, co-authored a plan to address the unfair advantage these banks receive because everybody knows the government won’t let them fail.
And while the mega-banks tell us that customers can benefit from their “economies of scale,” customers have not seen lower rates or charges as the result of their extraordinary consolidation.
These banks are holding the economy and the public hostage to their own possible failure. That’s why they—and the bankers who work for them—were publicly notified by the Attorney General of the United States that they needn’t fear prosecution for their crimes. He later tried to walk that statement back, but he had only articulated a policy that had long been obvious among observers and lawmakers.
Our largest banks are becoming bigger than the law.
3. Bigger Investors
Holding companies, hedge funds, and other institutions own more and more of the private-sector economy. That includes groups like Mitt Romney’s Bain Capital, which invests in everything from pharmacies to retail chains to homes for troubled teens.
Edward Snowden’s revelations about the NSA lifted the veil of secrecy surrounding government contractors like his last employer, Booz Allen Hamilton, which is owned by a holding company called the Carlyle Group. Booz Allen brought the Carlyle Group $5.9 billion in revenue last year. In a classic example of Bigger in action, it also announced a new national security deal in February worth $11 billion.
Mega-investors like Bain Capital and the Carlyle Group aren’t like entrepreneurs or investors of the past, who put money and effort into businesses they believed in and then built them to last. They want their payouts on the shortest possible timeline, so they push executives at the companies they own to make the bottom line look as good as possible.
Sometimes that means sacrificing the long-term good of the company for a fast-buck payout to these holding companies. That may be one of the reasons why so many American corporations are giving out so much in dividends and share buybacks, rather than investing in infrastructure and employees.
When investors get Bigger, they insist on getting paid Faster.
4. Bigger Charities
It should be no surprise that all of this, along with government policies toward taxation and other matters, is creating runaway levels of individual wealth. And as a few individuals amass extraordinary wealth, even charitable giving becomes a bigger problem.
The philanthropic world is now dominated by a few players. The Bill and Melinda Gates Foundation is the mega-player, with more than $34 billion in assets. That’s more than the next three foundations combined. As of 2011, the top five foundations held nearly one-third as much in assets as the top 100 foundations put together. As foundations and other philanthropies expand, charitable organizations which are outside their funding protocols are less and less likely to receive funds.
Some players get Bigger within a niche. New York’s Robin Hood Foundation, originally funded by hedge fund donors, was given a great deal of authority over small donors’ funds to aid the region’s victims of Hurricane Sandy. Like similar foundations, Robin Hood has occasionally been used as a propaganda tool for arguing that government “can’t do the job.”
That’s not charity. That’s ideology.
Using aggressive sales tactics and rough elbows, the Susan G. Komen Race for the Cure came to dominate the breast cancer charity world. It became controversial after suing other charities that used some of the same phrases or symbols, even when they would have seemed to be in the public domain. (The word “cure” and the color pink were the subjects of two such lawsuits.)
The Komen group then abruptly defunded Planned Parenthood and other service groups, seemingly for political reasons. The resulting controversy helped the debate in one very real sense: it provided an object lesson in the dangers of Bigger, even in the world of charity.
5. Bigger Corporate Data
The recent NSA scandals have revealed the dangers of Bigger Data. But that phenomenon’s closely linked to Bigger’s other areas of overgrowth, especially in finance and investment. The scandal and controversy surrounding Facebook’s IPO (initial public offering) offered a glimpse into the intersection of Mega-Banks, Mega-Investors, and Mega-Data.
Every large enterprise is now pursuing bigger data. A new private study suggests that there continue to be fewer corporate data centers in the United States, but that each is correspondingly larger. Highly centralized databases leave businesses, economies and societies more vulnerable to disruptions caused by accidents, natural disasters, or acts of terror.
The Big Data vendors include Twitter, Facebook and Google. But they also include niche forms of Big Data, like banking. Newly launched banking investigations involve something called "dark pools," an alternative form of trading that takes place outside the normal stock markets. There is now evidence that the banks and service companies whose data platforms provide this service have been "front-running" trades, using customer information from their data systems to enrich themselves.
Even news organizations are entering the data-selling business. For $2,000 a month, Thomson Reuters offers a service called “ultra-low latency” which gives subscribers access to key economic reports two seconds before they’re released to the public. As Business Insider notes, “two seconds in … trading time is an eternity.” That’s because stock markets are computerized Big Data operations, too, and transactions can occur at nearly light-speed.
Big Data corporations are typically currently valued well in excess of what its real revenues would suggest. That’s certainly true of Facebook, because the world of Bigger believes in the power of data—and Facebook has it.
Most Facebook users would probably say that its interface is hard to use. Its founders aren’t wealthy because they’re brilliant programmers. They’re not visionaries, either. They thought they were creating a relatively small set of social networks for colleges. But they stumbled onto something powerful—the power of data that users volunteered about themselves—and they exploited it aggressively before anyone else could compete with them.
That’s how the world of Bigger works. You don’t need to be the best. You need to be the first. Then you need to be aggressive in order to stay the biggest. The forces of Bigger will do the rest.
6. Bigger Government Data
Mega-data is changing our government, too. The Obama administration’s “Big Data Initiative” suggests a mentality which believes Big Data is more useful than other forms of information.
Big Data has already created a national security apparatus of staggering proportions, as Dana Priest and William Arkin reported for the Washington Post. Large databases can provide enormously useful information, but they can be a distraction too. As Priest and Arkin observed, “lack of focus, not lack of resources,” prevented law enforcement officials from stopping the Fort Hood shootings.
That can happen when too much data is presented without adequate screening. Reports from a smaller data initiative—perhaps even an old-fashioned warrant and search on the radical cleric with whom he was corresponding—might have been much more effective in preventing this tragedy.
We should learn from experience before assuming that the best thing to do with Big Data is make it even bigger. But that’s not the plan: Amazon, one of the corporate world’s biggest data players, has been hired to create a “private cloud” system for the CIA at a cost of $600 billion. That’s more than half a trillion dollars. For what, exactly? We don’t know. Perhaps to ensure that the same technology which keeps recommending those novels you don’t want to read guides the thinking of our intelligence community.
With Bigger Data comes greater temptation. Thanks to the Center for Media and Democracy’s review of Freedom of Information Act documents, we now know that at least one national security “fusion center” strayed from its anti-terrorism mission in order to analyze data on citizens conducting peaceful protests. Why? Because Jamie Dimon, the CEO of Bigger bank JPMorgan Chase, was coming to town and didn’t want to confront protesters.
That’s how Bigger works. Money, data and influence can intersect in unexpected and harmful ways.
7. Bigger Cronyism
As institutions and databases become larger, the temptations of power become bigger too. The Carlyle Group has been able to use its money to attract government figures from both parties, including former President George H. W. Bush and several senior members of the Clinton administration.
For his part, former President Clinton dealt for years with billionaire Ron Burkle, who offered him what the New York Times described as “the potential to make tens of millions of dollars without great effort and at virtually no risk.” For her part, former Secretary of State and leading presidential contender Hillary Clinton was on the board of directors of Walmart.
Big Power Often Follows Big Money
The Clinton, Bush and Obama Treasury Departments and regulatory agencies each became revolving-door operations for Wall Street. Officials and bank executives must have grown accustomed to seeing one another on the Acela train that runs from New York to Washington. The ones headed south are taking government jobs, where their friends will be well protected.
The ones headed north are cashing in.
Better
We’ve seen the spectacle of three former presidents, two Republicans and a Democrat, unable to resist the lure of big wealth. We’ve seen the 21st century’s two sitting presidents, one from each party, unable to resist the power of big data. With power increasingly corrupted by ever-bigger forces, who will speak for the individual citizens of this country?
Obama advisor Cass Sunstein attributes a wise quote to legal scholar Karl Llewellyn: “Technique without morals is a menace, but morals without technique is a mess.” But while Sunstein is presumably arguing against the latter, today’s more urgent and difficult task is to put an end to the former.
That’s why we need a new system of checks and balances. We need to recognize that Bigger needs to be tempered by fairer, that top-down control needs to be replaced with lateral decision-making, that a centralized financial, corporate, and government complex must never replace the smaller and more humane systems of democracy and small-business free enterprise.
The universe offers us a warning in the astronomical phenomenon known as a “singularity,” or “black hole.” If a star becomes too large, it begins to draw everything around it into its gravity field. Nothing can escape the hole around it, not even light. Then the star begins to collapse in upon itself, compressed by the irreversible force of its own mass growing greater and greater.
We don’t deserve Bigger, we deserve better.
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